Will the Financial Crisis Erode U.S. Influence?

Will the U.S. financial crisis lead to an erosion of U.S. influence comparable to the Iraq war?

Posted by Lauren Keane on October 3, 2008 3:33 PM

Readers’ Responses to Our Question (22)

AnjuChandel Author Profile Page :

The current US financial meltdown will first erode capital base of America and all other countries before actually eroding the US' geopolitical base!

We are living in a highly globalized world and a highly integrated one at that where all fates are connected and shared. We are already witnessing the devastating effects of the current American economic downslide in almost all markets of the world.

In today's financial "Chaos Theory", the economic "butterfly effect" gets magnified and multiplied fast and reaches far.

This is not an American crisis alone; this is a global crisis, now.

mibrooks27 Author Profile Page :

Oh, and boys and girls, just as I told you last week, watch out for the October 5, 6, and 7. This will will be a disaster. This is step three, as predicted by the model. But, the statistical model shows there is much much worse to come. The cause is external, but is likely a move by OPEC to repeg oil prices to the Euro. Then, then the stock market will blow below 9,000 so fast your heads will spin. And all of this you get a ring side seat to watch over thew next two to three weeks. The DOW will sink below or close to 8,000 by election day and we will be in an out of control world wide downward spiral that no one WILL stop. The model predicts unemployment levels close to 30% with inflation hitting close to that number. The only solution, the one not advocated by ANY candidates, not McCain, not Obama, no one, is to flat out end free trade, bring back tariffs on goods and services produced off shore, taxing the snot out of companies that outsource and investors that support them, ending the H1-B, L-1 and other work visas, force U.S. schools to give priority to U.S. students in programs necessary for our national survival - engineering, the sciences, computer programming, medicine, mathematics - and cease the globalization nonsense. No one, of course, will do anything like this. We are too wedded to those low low Wal-Mart prices and American businesses are even more wedded to cost cutting by displacing American workers with cheap Indian indentured servants. Unfortunately, the point of no return is in December or January, when it all collapses, and you get a ringside seat to World War III....
I am truly sorry, but the model has been frighteningly accurate. We're, all of us, toast.

moonpenn Author Profile Page :

Like I learned a long time ago, it doesn't pay to bluff. We don't have a bluff economy in the U.S. so things revolve around results. The rest is all you say I say. Everybody has a say. What they say might not make sense, but they're free to say it. Freedom from fear and fidelity & courage never changes. Progress is born of courage and America has a surplus of courage. The old machine just rolls forward with or without you. It never ends. I want to sleep beneath peaceful skies, no retreat and no surrender. If you are depressed, I'm not impressed. It's a busy day and we all have things on our minds. Stay busy!

frak Author Profile Page :

The coming depression will do wonders for maintaining America's svelte, girlish figure...The polyunsaturated obese children will fetch a pretty penny on the blackmarket BBQ circuit, and Economist's Brains Bordeaux will be de rigeur at the finest restaurants..Of course, heroin and drugs should be wildly popular, like alcohol in Capone's Depression era, and the coming world war should offer fresh rays of hope to the new Gatsby crowd..as well as fresh rays of neutrinos!!!

deflag Author Profile Page :

Maybe we can all get tied up taken away and held for ransom while we're passing the bill for the ransom to the next generation. I'm proud to be an outsider and an American. Capital seeks the highest yields and always will. The insiders are all debating how to extend the lowest yields to get to LCD at a high price over the long-term. The mortgages don't look bad, they just need to be spread over more time. You'll be into 60 year mortgages next, all to keep high end houses affordable. If you can't afford it, stretch it out over more time. Quality pays for itself and can be difficult to find. Keep looking and you will keep busy. They are busy destroying wealth with the expectation of creating more wealth. It's looking inside out. Here comes my girl and she didn't run up your bills so she isn't paying them. Join the Christmas Club!

myownline Author Profile Page :

Belately reading a Fareed's article on Treasury Secretary in the last week's Newsweek, I was very disappointed by his viewpoint that America is fortunate to have Mr. Paulson to handle the financial crisis. Have you already forgotten that he was Goldman Sach's CEO and one of the five investment bank executives who pleaded to SEC for deregulation of the old SEC regulation on capital reserve requirement? You sounded that rescue of the financial crisis is in good hands of Treasury Secretary. I seriously doubt your viewpoint, putting it mildly. Iraq war can not be undone easily and will cost America over trillion dollars, but is nothing compared to the shady business of credit default swap that runs 60 trillion dollars unregulated. I believe a $700B bailout plan is only a tip of iceberg handed down to the next administration. With $14 trillion dollars in national debt, it is no brainer to see how long and how much this financial crisis will negatively impact foreign countries, not to mention the most important American public. Influence, sure, but only negatively.

mibrooks27 Author Profile Page :

Between the lies about Iraq and WMD's and the craven posturing of our political chattering class bailing out the Wall Street criminals that created the economic mess, there really aren't many people left who trust the government or business. We're all convinced that they are a bunch of snakes that have been playing a con game with all of us being the marks. The Post, the politician's, business, banks, all of our institutions are being delussional if they think ANYTHING can repair the damage done. Liken it to a marriage where one of the spouses commits adultery, blows the family savings on a drug habit, and mortgages the house to provide gifts to the extra-marital girl friend or boy friend. Such a marriage is gone. There is nothing a marriage counselor can do to fix it. Maybe, out of convenience, or necessity, it might limp along for a while. That marriage will violently blow up in the event of the slightest "next lie", the next wrong, the failure to provide food and a home, anything, really. The contract we have with this society, not just with this government, but with this society, with all of its institutions, has been broken. If the movers and shakers aren't very very very careful, the people are going to demand a divorce.

deflag Author Profile Page :

I know, it's going to get worse. The entire Post is ready to close down too unless we do something right this second or in the next hour. What should we do? We'll see about it Monday. It never ends, does it? The machine here just rolls on.

Citizenofthepost-Americanworld Author Profile Page :

@ Shiveh who writes : “ …the whole thing is a gambling sham gone sour”, this from John Gray:

“In the casino capitalism that prevails in the early twenty-first century, investment has been replaced by gambling, and it will surely not be long before the (Iraq) war is written off as just another bad bet.” (“Black Mass, Apocalyptic Religion and the Death of Utopia”, p. 173)

I recall being struck by what future US Secretary of Labor (1993-1997) Robert Reich said, at that ASTD conference, in Boston, deploring that the best and brightest among US business graduates did not even think of going into business growth and development so as to create wealth for the nation, but rather rushed massively into the speculative sectors of the economy, where they were confident they would make a big fast buck, if not amass in no time a fabulous fortune for themselves.

That was almost 20 years ago...

tropicalfolk Author Profile Page :

I agree with other posters: for the US, the current economic meltdown is a lot worse than Iraq.

Middle East investors already control a large bulk of Citigroup. Singapore has a comanding role in Merryl Lynch. German and Japanese bankers are buying the remains of Lehman. European and Asian insurers are ready to buy AIG's business in the Northern Hemisphere, while Brazilians prepare to acquire AIG's business in Latin America. In other words, American financial powerhouses -those that heralded US power around the world- are no longer American.

China owns some $400 billion in Fannie and Freddy. If they decide to call those mortgages, China may end up owning several million homes in the US. It's just a matter of time before several million Chinese families begin moving to the US to occupy those homes.

Moreover, at a time of deep financial distress, only the best-capitalized companies will survive. US automakers have long been in trouble; now they are likely to disappear; German, Korean, Indian, Chinese, and Brazilian automakers are getting ready to compete for global dominance. The same goes for most other industries: aircraft, pharmaceuticals, electronics, software.

Finally, the economic downturn has brought remmitances to a sudden stop. The American Dream no longer exists in the minds of young people around the world.

daniel12 Author Profile Page :

Will the U.S. financial crisis lead to an erosion of U.S. influence comparable to the Iraq war?

Yes, I would say the U.S. financial crisis is as disastrous to the U.S. as the Iraq war. Especially if we can easily separate the Iraq war from being a cause of the current financial crisis. In fact I would say the current financial crisis will continue to grow as a problem--will continue to grow as countries realize that the problem is not so easily solved as saying the U.S. should turn to socialism or something.

I would say the deeper problem is that everyone is becoming economically sophisticated and that it is becoming apparent that no matter how kind economies can become (tend toward socialism) they will continue to be headed toward a world in which elites wield power--a type of power not easily able to be dislodged because it is elitism on a more refined and durable scale than ever before.

The economies of the world will tend toward being a system which sifts for elites in all categories and which throws the rest of us to the bottom of society because we do not have adequate schooling or for any number of other increasingly subtle reasons. We quite simply are becoming more and more knowledgable about what an economy can do for a person.

Socialism might increase but only socialism among elites. Capitalism might increase but only capitalism which benefits elites. What else do you call an economy which says it will try to help all people but which inflates or results in bubbles which most be popped? Doing away with inflation and popping bubbles results in many being left behind. We cannot benefit all without inflation or bubbles being created. The third world will not be uplifted to rival the first, the first world will beoome more stringent and accept only the highly educated as the goal of world economics. This means pockets of reliable economic influence in a world which is largely unreliable, a world which is given to inflation or bubbles.

Much more can be said. I leave it to others to articulate it more clearly.

Shiveh Author Profile Page :

I should mention that I heard much of the explanation I wrote below in a PBS radio program.

Zolko Author Profile Page :

Shiveh: "Does anybody know what the exact nature of this crisis is?"

Peak-Oil ?

PS: formerly Zoltan, hungarian in Paris.

Shiveh Author Profile Page :

Does anybody know what the exact nature of this crisis is? Why banks can not TRUST each other even for an overnight loan? Why CREDIT has dried out? There is not much talk about what has happened other than home prices have dropped. The following is what I could understand of this situation. Please correct me where I’m wrong.

Imagine that I buy a life insurance and pay a premium to an insurance company for it. Now imagine that the insurance company starts selling multiple duplicates of my life insurance to anybody else that wants to bet on my life. So, the insurance company is collecting several premiums and is required to pay everybody when I die. Now imagine that I get older and a little sick. Now anybody that wants to buy a new copy of my life insurance contract has to pay a higher premium. At this point those people that have an older copy of my life insurance start selling it to the new buyers getting a higher premium than what they are paying the insurance company hence turning a profit. They are safe on paper because if (when) I die, they can collect from the insurance company and pay the guy they sold the insurance to.

Now let’s go to Wall Street and Collateral Security Swap market (or whatever it's called!) A company sells a bond. The person that buys the bond wants to insure it, so let’s say he pays 2% of the value of the bond to an insurance company each year and insures the bond (my original life insurance.) Now the insurance company starts selling the same insurance to anybody willing to pay the premium, no ownership of the actual bond required. (Anybody wants to bet that I’ll die?) So I get a little sick (someone has a hunch that the company selling the original bond is not as secure as it once was - or in this case mortgage bonds are not performing) so the premium to insure the bond goes up (let’s say to 4%) and people having the lower premium contracts start selling insurance and this thing spread each time I get a little sicker.

If I’ve read the numbers correctly, at this point for 5 Trillion dollars bond market, there is a 30 Trillion dollars bond insurance market and the trail of who should pay who if the bond loses its value is so opaque that nobody knows the value of their own assets or anybody else’s assets. Institutions can not TRUST each other and the credit flow has stopped.

So the whole thing is a gambling sham gone sour. As far as I know gambling without a license is illegal so why not pass a law to cancel all the contracts that institutions got into without owning the bond (If I die only my wife gets paid) and let institutions do an honest accounting of what they are really worth without having to pay or collect these gambling debts. What is left can be trusted; what is lost would be a good lesson for next generation of Wall Street gambling minds.

One other note! The above mentioned “services” are part of our Gross Domestic Product calculation (and growth). No wander that on paper we are not in a recession!

This financial crisis is what we’ll make it to be. By spending Trillions of dollars to save these Wall Street gamblers we lose the chance to rebuild our factories and infrastructure and yes the influence of the U.S. will erode comparable to the Iraq war.

hgcsato Author Profile Page :

The simple, quick answer is yes but the damage to America's credibility in financial markets is much more severe than its Iraqi adventures as the Iraq matter is more or less an isolated error while the finance problem is a huge, systematic loss of face.

yousufhashmi1 Author Profile Page :

In the corporate cultue the net results or the bottom line is important. And the bottom line is that US lost its finacial and political supremacy in last decade.

Every thing is not lost and still US has the biggest and most robust economy in the world.It has technological advantage over its competitors and has a governace system which can be an icon for the nations .

Only missing element in both cases is the credibility.

it has forces and the hard ware which can defeat any army in the world. But the armies fight with the armies and follow some rules. If you start fighting with the shadows and you do not have any bench mark or time frame for the victory then you will not lose but also can not claim a victory.

The problem is that still present and future governments are pursuing the same policies and thinking that they can turn over the table. Un fortunately this happens only in movies .

When you are on top of the crest then you must understand that a down fall is eminent. The wisdom is that how long you can hold the ground and keep the graph straight.

Citizenofthepost-Americanworld Author Profile Page :

Erosion of U.S. influence has been a done thing for quite some time now. What this financial crisis is now leading to is far more serious, for it is an erosion of CONFIDENCE in the U.S., both at home and abroad. “America has become an unreliable member of the world community.” *

We have years of lies and deception behind us. With the result that we do not even know what hit us. Yet everyone can feel that somehow, rapacity is making this empire implode. “Not in a bang, but a whimper.” (T.S. Eliot)

Anger is palpable out there. This week, the American political class has lost whatever credibility it had left. More and more Americans have lost confidence in their rulers. More and more Americans feel sick just seeing that failed, rapacious, manipulated, “bi-partisan” lot perform in public.

Trying very hard, at times, to sound like a Kennedy, an Obama still fails to rally the American crowd; as time goes by, the cheers sound as though they, like the mighty campaign dollars, had to be begged for. But the show must go on, even though Reagan’s ghost with little Sarah on its side hardly entertains anybody anymore. Beyond the cheering few, deep inside, the powerless majority can be seen concerned, sceptical… and sad.

This week, something irreplaceable has obviously been broken in the United States of America. An unprecedented betrayal has broken the heart and the soul of the nation. Once broken, mobilizing them has become an impossible task, all the more so given the rallying call has been to better socialize unimaginable losses, while still keeping on privatizing profits, as well as preserving golden handouts for friends and crooks alike. Given such revolting impunity, who from now on can possibly mobilize the heart and soul of the nation?

Military power cannot mend hearts. Nuclear arsenals will never rejuvenate souls. What good is the mightiest hegemon, once deprived of its heart and soul? No more than a paper tiger blown in the wind.

We are about to witness that the new American century will have lasted less than ten years. The world now sees all too clearly that the Empire is naked: all along, it has been living off the rest of the world. Resting in the world’s intensive care unit, it now requires immediate attention and emergency resuscitation care. The prognosis is grim. However long and arduous the convalescence may be, the patient is not expected ever to fully recover. The rest of the world has lost faith in American exceptionalism and moral authority.

This, I believe, is only the beginning of a long, excruciating agony. Was it not Ghandi who held the view, and kept on repeating, that we were always the first victims of our own faults and crimes? Not even declaring the International Court of Justice irrelevant can change natural law, that is, the fundamental law of our being, individual or collective.

John Gray adds: “No constitution can impose freedom where it is not wanted or preserve it where it is no longer valued.” **

Had not George F. Kennan warned us? “The greatest danger that can befall us… is that we shall allow ourselves to become like those with whom we are coping.”

People, in this country, are unlikely to soon forget this very sad, most humiliating week.

* Ronald Wright, “What is America? A Short History of the New World Order.”

** “Black Mass: Apocalyptic Religion and the Death of Utopia”

deflag Author Profile Page :

I'm not in the same boat. I'm in a submarine so to speak. It's more stealth and private. It's lonely down here though.

deflag Author Profile Page :

They're trying to digest the debt and it's all indigestion. Our U.S. economy is more dependent on educated people than factory workers, so the best minds in the world are here and those people can't be terrorized. It seems to me that the real losers in global terrorism are the countries that depend on the United States to consume what they produce. Without consumers, production suffers. If we are hurting, the world that now supplies us with much of what we need hurts. You can't hurt us without hurting yourselves. Oil is a good example. High prices have driven airlines to the point of collapse, meaning lost revenues for countries who export oil. We don't need permits to live and when price grows unreasonable, we stop consuming and hold back. We are reasonable in business, not so in politics and the world needs business. Wall Street is entrenched now with politics and it i looking grim. It's limited by geography. Business is not limited by geography. The smart companies are going to go from being publicly controlled to absolute private control to avoid the wreckage to come. You can stay public and watch your business implode or make some choices now and keep it all in the family so to speak. We could see a market crash on Monday, so there's the weekend to work with and the bailout passed. I'd spend the whole weekend restructuring things to avoid the panic on Monday morning when everybody figures out that the promised bailout money is coming out of what wealth is left in the public markets. The entire thing looks like it was crafted by the raiders of the lost ark to secure toxic assets and nobody is sure of the value of the assets. We are sure of the lack of value and we aren't even sure how much it's going to cost to digest this mess. In other words, we're all expected to eat the losses and pay a premium for the meal. The whole dining room is booby trapped. It's the Last Crusade and instead of being exposed to risk in public, you are better served being exposed in private. Isn't that always the case?

Daho Author Profile Page :

America's influence is on the wane, but no one should be happy about it. It has made too many wrong moves during the present administration, which refuses to admit any mistake. The world is in a mess and most democratic countries face considerable challenges in the political, economical, financial and particularly social. It requires the courage, honesty and competence of governments of all these countries to accept to meet in order to discuss which are the best measures to be taken to correct the wrongs we have been experiencing for the last 30 years, and apply them loyally in the best interests of their respective population. These countries should be united rather than have a selfish unilateral approach to the problems. We have to remember that we are all on the same boat.

tototiti Author Profile Page :

No, it will be much worse. The Iraq war was a failure, but it was foreseen. This time, many people *really* believed, or wanted to believe, in the US financial power.

mibrooks27 Author Profile Page :

What a silly question. It has already done MORE harm than our diaster in Iraq. I read European newspapers and suggest you do the same. They are *furious* at the U.S., at COngress, and at U.S. corporations. All of the headlines want to know where the regulations are to prevent this sort of fraud in the future, where the criminals indictments are to punish those that defrauded THEM of billlions. Worse, much much worse, is the flat statements by European businessses and governments that they WILL NOT do business with American corporations. Germany, Sweden, Denmark, Frqnce, everywhere you look, they are pushing American corporations out, using every means at their disposal. Likewise, the bailout passed today, has resulted in such furry, such a storm of derision and anger, that we might just have created a permanent rift. That extends from the general populous to th government to businesses. We stepped in it here. Instead of punishing that collection of Wall Street and corporate thieves and scounderals, treasonous swine, we rewarded them. We will pay and pay and pay and pay for that folly.

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